Trade secrets can hold immeasurable value for a business. Although immeasurable is accurate, there are situations when it is important to try to give a trade secret an economic value. A valuation is helpful for planning purposes and is also needed in the event of an alleged breach. This is not an easy task.
What is the best way to estimate the value of a trade secret?
The best valuation method when it comes to trade secrets is generally the net present value of future cash flows. This involves a review of:
- The cash flow
- Future cash flow projections, and
- The probability that the trade secret will realize these estimated future cash flow projections.
Each factor involves a complex analysis to reach an estimated value for the trade secret. These include an evaluation of the estimated income over time if the trade secret remains secret compared to the value if it became public knowledge as well as the probability of prevailing in a civil lawsuit to protect the trade secret. This last part is contingent upon the trade secret holder taking reasonable steps to protect the trade secret.
How can a business who they took “reasonable steps” to protect a trade secret?
The trade secret holder can help establish that they took reasonable steps to protect the trade secret by meeting the six-factor test supported by the American Institute of law. These factors include keeping the number of people who know the trade secret low, both inside and outside of the business, as well as putting time and effort into putting up safeguards to protect the security of the secret.
What if a competitor threatens my trade secret?
Those who believe they are the victim of misappropriation of a trade secret can fight back. There are legal remedies to hold those who take this information accountable. A civil suit for unfair competition may lead to an injunction to stop the individual or business who is in the act of misappropriation as well as lead to funds to help make up for any lost revenue.